Question
The business of ATC Limited was being carried on continuously at losses. The following are the extracts from the balance sheet of the company as
The business of ATC Limited was being carried on continuously at losses. The following are the extracts from the balance sheet of the company as on 31 st March, 2022: Liabilities TZS Assets TZS 30,000 Equity @ TZS 10 each
300,000 Goodwill
50,000
2,000 8% Cumulative preference shares of TZS 100
200,000 Plant
300,000
Securities premium
90,000
Unsecured loan (From directors)
50,000 Loose tools
10,000
Sundry creditors
300,000 Debtors
250,000
Outstanding expenses (Including remuneration)
70,000 Stock
150,000
Cash
10,000
Bank
35,000 Preliminary expenses 5,000
Profit and loss
200,000
Total
1,010,000 Total 1,010,000
Note: Dividends on cumulative preference shares are in arrears for 3 years. The following scheme of reconstruction has been agreed upon and duly approved by court: i) Equity shares to be converted into 150,000 shares of TZS 2 each. ii) Equity shareholders to surrender to the company 90% of their holdings
iii) Preference shareholders agree to forego their right to arrears to dividends in consideration of which 8% preference shares are to be converted into 9% preference shares. iv) Sundry creditors agree to reduce their claim by one fifth in consideration of their getting shares of TZS 35,000 out of surrendered equity shares. v) Directors agree to forego the amount due on account of unsecured loan and directors remuneration. vi) Surrendered shares not otherwise utilised to be cancelled. vii) Assets to be reduced as under: Goodwill 50,000 Plant 40,000 Tools 8,000 Sundry Debtors 15,000 Stock 20,000
viii) Any surplus after meeting the losses should be utilised in writing down the value of the plant further. ix) Expenses of reconstruction amounted to TZS 10,000. x) Further 50,000 equity shares were issued to the existing members for increasing the working capital. The issue was fully subscribed and paid up. xi) Authorised capital was suitably increased.A member holding 100 equity shares opposed the scheme and his shares were taken over by a director on payment of TZS 1,000 as fixed by the court.
REQUIRED: Pass the journal entries for giving effect to the above arrangement and also draw up the resultant Financial Position of the company.
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